With the lockdown imposed, all economic activities had come to a standstill, except the stock markets. Again this was a new phenomenon. No one in the world had ever seen this and it was new to everyone. While investors were spooked, a combination of measured calls, luck and tenacity helped in these times.
It was a ROUND this time last year when the first of the Covid-19 cases were being reported in the country. After touching an all-time high, the Sensex fell more than 40% in less than three weeks. However, the index bounced back in the last 12 months refining the way one looks at the investing journey.
The various approaches
With the lockdown imposed, all economic activities had come to a standstill, except the stock markets. Again this was a new phenomenon. No one in the world had ever seen this and it was new to everyone. While investors were spooked, a combination of measured calls, luck and tenacity helped in these times. So, how did investors approach and adapt to this ecosystem?
A category of investors actually cashed in all their investments, thinking that the markets would fall further. The logic being if there is no economic activity, then the stock markets can go only one way – down and south. Nothing wrong with this thought. Another category of investors, cashed in 50% of the investments and let the rest ride. The logic being that if the markets go down further, they can re-enter and /or keep it in a less volatile and more secured asset class.
Asset allocation method
There was another category of investors who had allocated the investments as per the time horizons and asset allocation method. They actually followed the plan and did not exit the markets. As their cash flow timings were known in advance, panic did not set in and they continued to stay put and grow their investments.
And finally, a new category of investors or traders or enthusiasts entered the stock markets. With time in their hand, they started dabbling in the markets and many of them got quick returns. A few of them, over time, will graduate into serious investors which add to the investing community.
Investing is not carried out by driving with a rear-view mirror. It is forward looking and one has to embrace the possibilities the unknown brings in. Over the last few weeks, if we talk about opening of the Indian economy further, we have seen:
PM Wani project being announced, which aims to make wi-fi affordable and reachable across the towns and villages. More than baby steps have been taken in this regard. This could revolutionise the eco-system in a manner, unknown today. Again, execution is the key.
Opening up of the geospatial space has been welcomed by entrepreneurs and the ecosystem of mapping and other services. Here again, execution is the key.
More privatisation of PSUs is welcome as it will unlock the economic potential of the companies.
In fact, the Nifty PE is at all-time high in excess of 40. It was at levels of less than 18 in March 2020. What it indicates is that prudence needs to be exercised in fresh allocations and for any tactical investments being carried out, one has to have a strategy in place.
Regular investing with a process is the approach at all times. This has been displayed very clearly in the last 12 months. What goes down, also goes up and vice-versa. The volatility at all levels and times should not in any way hinder the wealth creation journey.
The writer is managing partner, BellWether Associates LLP